Why Bidding Wars Are Back Big Time for 2015

Bidding Wars. It's the FIFA World Cup of the real estate world. Several teams play in the competition, but there can only be one winner. It can be a crazy game with plot twists and surprises, or it can play out as every one expects. Of course, most transactions do not involve a bidding war. So don't expect one every time you set out to buy or sell a property. Still, 2015 so far is proving to hold many more bidding wars than last year, and in areas that did not have them before.

Up until recently most bidding wars were predominantly found in downtown neighbourhoods in the old city of Toronto (pre-amalgamation), and it pricier parts of North York. Many advanced emerging neighbourhoods draw in quite a few bidding wars when they are well located, well staged, well marketed and well priced properties. Since houses, as opposed to condos, are in low supply in Toronto, that is where most of the bidding wars have been, and will likely remain.

Some neighbourhoods are more prone to them than others. And some price ranges are more prone to bidding wars than others. A property in Leslieville, Roncesvalles, Trinity Bellwood or the Junction Triangle will likely bring in a higher number of bidding wars.

I should be clear that a neighbourhood that has more bidding wars does not necessarily mean the properties are more valuable. It means that some neighbourhoods have a more prevalent culture of bidding wars over others. Some neighbourhoods seem to expect bidding wars. Other neighbourhoods, such a Cabbagetown, you'll find the list price higher, but the difference between list price and sale price to be much smaller than in neighbouring Riverdale. Why is that? Are houses less valuable in Cabbagetown? Well, not at all. Buyers expect a more realistic list price in Cabbagetown than in Riverdale. It's just a different way of doing things.

The bidding war culture is spreading though. I'm seeing it in areas of north of the 401 that did not have them last year. I am hearing about them as far off as Durham Region. I am also seeing a few bidding wars with condos, though this is still much less common than with houses. Bidding wars were much more common ten years ago with condos, but have slowed down with the growing supply. This past year, however, does show that condos are increasing their level of bidding wars. I think it speaks to an increase in the demand for condos, particularly ones that are distinct and well-located.

Bidding wars are also a result of price point. A home for sale for $3,000,000 will draw in fewer buyers than a home for $600,000 (that will net a lot more buyers simply because there are very few people who can afford a $3,000,000 home).

The rise of bidding wars can also be blamed on real estate sales people. Yes, people like me. Some believe that bidding wars are a good way to reveal the best price for a given property. It's almost like a blind auction where the home goes to the highest bidder. It is a strategy that can yield great results for sellers. Of course, some agents price their properties so low  that they receive 20 plus offer, which I believe is a waste of time for buyers and their agents. Some agent like to pad their stats. So,  if they sell $350K over asking they can be talked about in the Toronto Star or use these stats in their next listing presentation. They can brag that are the reason that their sellers have received hundreds of thousands over the asking price when the reality is that the listing agent has priced the property far too low.

Not all properties that sell well over asking are a result of an agent listing low. Sometimes you can have a change in the market where one house makes a leap ahead of the other. It is the best home put on the market that week, and buyers flock to that particular property. But lets temper our expectations, sellers.  To have a competitive house there is a lot at play. Yes, it has to do with location, but also your marketing plan, and how your house is laid out and staged.  Not all houses are sold in bidding wars, and that's not a bad thing! Other strategies work too.

Buyers, don't let your ears hang low like a dog because of your fear or disappointment with the bidding war culture. There are strategies to buying as well. If you want to live in a certain neighbourhood, you'll have to be competitive, but if you don't have time, the stomach or the money, there are other ways too.

Why Toronto Prices Go Up While Most of Canada Loses Steam

I often get a little annoyed when organizations from other countries put out headlines like: The Canadian Real Estate Market is Due for A Correction. It doesn't bother me that someone is suggesting that a real estate correction could take place, but that the entire country would function in the same way. And right now, we are experiencing a time when the real estate market of Canada is not performing in the same way at all. Why? you ask. Because there may be many macro factors, like interest rates, that do have affect the real estate market on a national level, but most often, the local factors are much more powerful. Things like the local enconomy, the location of the property and the state of renovation of a given home have significant influence.

With resource-based economies like Alberta and Saskatchewan, it is not surprising when oil becomes less productive, so does the real estate sector in these provinces. 

There is a reason why Toronto and Vancouver are thriving despite that fact that the rest of the country seems to be cooling off. One has to do with the diversified economies of these two cities. People come to Toronto because there are different kinds of employment. If one employment sector fails or temporarily dips, the whole city does not go downhill. That's the advantage of a diversified economy. 

Also, both cities do not rely on oil. In fact, oil has caused the dollar to go up quite a bit to the disadvantage of Ontario and British Columbia. Now that the dollar is back down, industries in Toronto and Vancouver are able to be more competitive in the American  and overseas markets with the cheaper dollar. 

As far as Toronto is concerned, there is a limit on the supply of houses in this city. So, unlike some cities where there is room to grow. Toronto cannot expand into its green belt. And for the same goes for Vancouver that cannot expand into the mountains. Since developers make more money off of developing denser condos, they rarely build single family houses unless the zoning allows for low density homes exclusively. There is such a shortage of houses in Toronto that in many neighbourhoods the bungalow is going the way of the dodo bird. With huge lots, they are being torn down where bigger houses are built in the bungalow's place. 

I'm not saying the sky is the limit for Toronto and Vancouver, but for the foreseeable future, these cities will continue to draw people in and real estate prices, especially for houses, should increase. It will be a luxury to live in a central, established neighbourhood at some point.  I believe the rate of increase in the value of a house will continue to outpace income. Even this year, with Toronto incomes increasing only 2.4% where detached houses increased in value by 10% year over year. Some may say this is unsustainable. And to some degree, I agree. We will not see these prices go up forever nonstop. Still, I think if you bought a house in Leslieville 10 years ago, you would be considered a first time buyer gambling on an emerging neighbourhood. Nowadays, you would be considered someone trying to compete to get into one of Toronto's desirable neighbourhoods. In the end ,our expectations of a neighbourhood change. And what is considered too far, too unknown or too grim now may be a neighbourhood you may not able to afford yourself in 10 years. 

What Momentum Does to an Emerging Neighbourhood

Sometimes it's tough to consider a neighbourhood "emerging" when the average detached home in some classic Toronto emerging neigbhourhoods clear a million dollars in sales. Emerging neighbourhoods have traditionally been the terrain of first time buyers and investors. The thing is, the emerging neighbourhoods of years past have now become more that just emerging neighbourhoods. They have become established neighbourhoods with some serious draw to them. It is where the demand can be very strong, particularly if you are buying a house. They are no longer areas on the fringe that offer inexpensive prices at a reasonable cost. They are destinations where buyers are clamoring to get in.

Once upon a time, the middle and upper middle class largely lived in North or Midtown Toronto, north of Eglinton where there was less social housing, less rental units, and less diversity in the population. There were a few neighbourhoods that were still appealing to some. Back in the 70s and early 80s, High Park was considered quite middle class, though likely more artsie and hippie. Roncesvalles used to have its own Birkenstock store after all. Same goes with the Annex and the Danforth. A little more artsie and distinctive.

Nowadays, you have to be making a lot of dough or inheriting a lot of money to buy in central High Park and the Annex. Don't get me wrong. There are always deals to be had, but they are few and far between, and usually require a reno in these neighbhourhoods.

And it's not just in these neighbourhoods. A lot of interest has shifted to the south core of Toronto (south of Eglinton) in the last twenty years. King West, Queen West, Trinity Bellwoods, the Junction, the Junction Triangle, Riverside, Leslieville Corktown, and Parkdale all draw in their share of interest. The good restaurants, the exciting condos are often below Eglinton between the Junction and Leslieville. Neighbourhoods like Leslieville may still seem a little rough around the edges in a few spots, but don't be fooled that this is an inexpensive place to buy. It's no Leaside in terms of the prices, but it has become a desired neighbourhood in which to live. Those young families have attracted more families creating better schools and engaged parents. Well-invested and aging parents move closer to their adult kids in Leslieville because of the walkability of the whole place. There are amazing places to go here. Not just Subway and Tim Horton's but a Circus School for your kids, an indie coffee shop an every corner, and some of the best bakeries in the city.

To be clear, this post is not here to make the buyers of Toronto feel sad or hopeless. You shouldn't be. This should be an inspiration to you. If you don't have a good mortgage and a healthy down payment, you may find it hard to live in Leslieville, but you can live in a future Leslieville. It doesn't look like Leslieville now, but it may some day. Danforth Village is still filling up. The west end between St. Clair and Dufferin is ready for its next shift. And if you're really looking for a bargain, head out to Hamilton. Yes, that city is on the rise, and the momentum is building. Look for the potential, not just the end product. The nice shops and the better schools will come. Momentum is a hard thing to stop.